Essays on unconventional monetary policy

This dissertation is comprised of three essays in which we provide a theoretical framework to study the transmission mechanism of unconventional monetary policy on real activity and credit markets under differing degrees of banking sector concentration. In particular, the three chapters in this dissertation focus on expansionary balance ­sheet policies consisting of long­-term asset purchases by a central bank. The overall results indicate that such expansionary policies stimulate economic activity in the form of capital formation, increased credit volume and financial easing under low short-­term interest rate economies when the financial sector is perfectly competitive. However, when the banking sector is fully concentrated, the transmission mechanism of monetary policy can be distorted and thus the impact of a long-term security purchase program is hampered. Our results also suggest that the fiscal authority as well as the industrial organization of the banking sector play fundamental roles in the transmission mechanism of unconventional monetary policy.